FocusIndia Budget 2010-2011 disappoints polymer players – sources

01 March 2010 10:06[Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--An imposition of 5% import tariff on crude and increase in excise tax from 8% to 10% proposed in Indian Budget 2010-2011 has disappointed local polymer players, sources said on Monday.

Consumers would now have to pay more for plastic goods as a result of the additional taxes, they added.

"The increase in crude [tariff] will increase the production costs of refinery players such as Reliance Industries and Indian Oil Corp (IOC)," a source close to the producers said.

However, exports from Reliance’s refinery at the special economic zone (SEZ) at Jamnagar in Gujarat state would be exempted from tariffs, the source added.

"But refined product being sold into the domestic market from Jamnagar would have to factor in the tariff," the source said.

"Gail is a gas-based producer, while Haldia is only integrated up to naphtha, not crude," the source said.

Naphtha prices would remain unchanged, as tariffs on naphtha had not been increased from the current 5%, the source added.

A Mumbai-based trader said that the increase in excise tax had also been disappointing.

"Our fears that excise tax on polymers would be increased have come true. Although producers will pass on the additional tax to consumers, the end customer will have to pay an additional price, which could dampen demand," the trader said.

A post-Budget increase of 5% or Indian rupees (Rs) 2.50/litre ($0.054/litre) in petrol and diesel prices by the Indian government also added to the woes of the Indian polymer sector.

"This will increase the transportation costs of resin and plastic durables, which producers will seek to pass on to the end customer by increasing prices," a polymer end-user said.

The additional investment into the agricultural sector that producers had hoped for has also not happened.

"We are disheartened that the government has not increased the allocation for agricultural production. If it had done so, it would have greatly boosted demand for polyethylene (PE) and polyvinyl chloride (PVC)," a source close to a major Indian polymer producer said.

Polymer players’ hope that the current complex sales tax regime would be replaced with a simpler goods and services tax (GST) was also not realised.